TOP NEWS

Thursday, September 4, 2014

Radical.FM: Taking On Pandora, Ad Free

Story by Benjamin F. Kuo

There are an awful lot of Internet music services out there nowadays--how does a startup try to compete with all that noise, and do it ad-free? Los Angeles-based Radical.FM (www.radical.fm) thinks it has a new formula for Internet streaming, and can take on Pandora and others in head to head competition. We spoke with founder and CEO Tom McAlvey about the company.

Explain what Radical.FM is about?

Tom McAlvey: As of today, we would define ourselves more readily for public consumption as a competitor to Pandora. The main reason for this, is because Pandora has such name recognition and understanding. We do define ourselves a bit differently, however, because we have a different approach to generating our stream of music. Next year, we'll also be competing in a lot of other areas, and will be announcing some interesting new technology in the coming months.

What's different in what you're doing?

Tom McAlvey: The most obvious to regular users is that we're ad free, and user supported. We are using the Wikipedia model, and use a what you can pay donation model. That's our single biggest differentiator today. In the actual user experience, we like to think the biggest difference between us and Pandora, is that we generate endless playlists for users. Pandora is very tech driven, very algorithm driven. For us, it's much more hand programmed by music lovers and experts. We do have an algorithm, but our is extremely simplistic, and only a small part of the puzzle. We're kind of like Sirius Satellite Radio, so instead of having to pick just genre--say, Classic Rock, until you are bored to death with it--we let you pick as many genres simultaneously as you want. However, each of those genres is hand picked and hand curated.

Are people actually willing to donate money for a service like this?

Tom McAlvey: I think it's too early to say. I think we're simply too small and too new of a service to have any kind of statistical base we could extrapolate. I think when we get up to a couple of million users, there will be a serious amount of donations coming in, and our investors will keep Radical.FM going. I tell our users, this is not a marketing ploy or anything else. This is very much driven by the leadership here not liking commercials. We want this to be commercial free, and we don't want to force it through subscriptions. It is a bit of a experiment, of course. Investors will not let me get away with this forever if it never shows any potential for payoff, however, they accept it might be a pretty long run before we can draw conclusions on how well htis work. I am absolutely dead serious, in I hope that this works like this forever. Interestingly enough, that model works because right now, the CPMs for competing services are nothing like what terrestrial radio gets for their advertising. I consider the other services now are dramatically undervalued in terms of CPM. They should be much higher. At this point, with CPMs where they are, we can actually do a lot better with donations. We sincerely hope that people will step up enough to support our content, so we never have to rely on commercial ads.

How does your music catalog compare to other services?

Tom McAlvey: We have everything. Pandroa has everything, too, but it's a smaller catalog for them. We have 25 million tracks. The difference between Pandroa and us, versus who we are, and on demand services like Spotify, Beats, or Rhapsody, is they have direct licenses. Whereas, we work with statutory licenses. As you know, there are many digital holdouts -- that can be folks like Led Zepplin, the Beatles, Bob Seger, and lots of newer stuff, where artists specifically don't want to be in digital. That's why there are so many holdouts on services like Spotify. We don't have those holes. We have the right to play anything we can get our hands on, as long as we pay for it. Every song we have is streamed at statutory rates. That means we have no holes, and get any artist available.

How long has the service been available?

Tom McAlvey: We are really new, after what I would call a couple of false starts. We did some early advanced alpha testing, and had to pull the service in. More recently, we found the technology wasn't really appropriate for mobile. As you know, in this day and age, if you don't have mobile, you're nothing. So we did what we consider our real launch on the Fourth of July. We now have both Android and iOS coverage, and very soon we'll be releasing a web app. That will round out our initial offering.

Where are you in terms of investment?

Tom McAlvey: Doing this isn't cheap. It's millions of dollars to get something like this seriously off the ground. It's not just the rights holders, agreements, and royalties. It's also a vast list of complex things. The most important part in this earliest phase, before we scale, is the technology to do this well. I think we're pretty good now, but technology has been an enormous investment. My Achilles heel, is I'm a music guy and entrepreneur, more than a tech guy. I've been force to get really good at technology, and have relied on a whole team to build this. That doesn't come cheap. Radical has investors who are all private, and we'll be looking for another round of financing around the time we release our desktop version. We're preparing a larger Series A right now.

Finally, where do you think the world of online and digital music is going, and where do you hope to sit?

Tom McAlvey: I think what will happen, is that on-demand services will continue to eat into the sales of physical and digital downloads. Pandora type services will continue to eat a little into Am, and especially FM music radio budgets, which is perfectly natural. The big news, which we hope to spearhead next year, is to bring terrestrial radio into digital radio in a big way. We want to make it successful, and user friendly, in a powerful way. The big fringe benefit of this, is for the artists, composers, and even the labels. I have a music radio background, and am pretty well known in Sweden, having been at Sweden's most popular rock radio station, Bandit Radio. So, I have a different view of where things should move. Almost all of our direct competitors in streaming music have a technology or music background, some a little bit of both. However, in my case, it's a broadcast radio background. That's completely unique, and we've built things with a very different philosophy. I believe we can open up a huge windfall of money to artists and labels, which right now are getting almost nothing from online music. The reason we can do this, is because right now, the money from music radio isn't thought of as the music industry, it's thought of as a the separate radio industry. We think we can access all of that money, and from a musician's standpoint, will make them very happy.